LTC Bullet:  GAO Punts on Medicaid Planning

Thursday, July 3, 2014


LTC Comment:  Another GAO report underplays dramatic findings about the role, methods and extent of Medicaid planning and loose LTC eligibility rules.


LTC Comment:  Time after time the Government Accountability Office (GAO) has published studies that downplay the impact of Medicaid’s loose and easily manipulated long-term care eligibility rules.  Why and how? 

We’ll get to that below in a discussion of the government watchdog agency’s latest report, but first some examples from our past reporting:

LTC Bullet:  GAO on LTCI Partnerships, June 20, 2007:  GAO drops the ball again on the issues of Medicaid, long-term care financing and private insurance.

LTC Bullet:  GAO AWOL on LTC TOA, May 2, 2007:  The Government Accountability Office has again displayed stunning miscomprehension of the Medicaid eligibility, Medicaid planning and transfer of assets issues.

LTC Bullet:  Georgetown, GAO and Kaiser:  The Bermuda Triangle of Good LTC Policy, January 25, 2006:  LTC doubletalk is not the exclusive province of Medicaid planners and AARP lobbyists.  Otherwise often reliable analysts get long-term care policy wrong too.

LTC Bullet:  GAO on TOA Underwhelms, October 5, 2005:  The Government Accountability Office's new report on Medicaid asset transfers asks the wrong questions, uses the wrong data, and so provides few helpful answers.

It’s not an impressive record and GAO’s latest report, titled “Medicaid:  Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Nursing Home Coverage,” is another case in point.  Read a summary and find a link to the full report here.

What’s wrong this time?  GAO produces some dramatic findings about the extent and potential cost of easy LTC eligibility and Medicaid planning but downplays the problems and fails to propose solutions.  Here are some examples followed by our speculation as to why GAO does not connect the dots.

Quote from the GAO Report:  “Nearly 75 percent of applicants owned some noncountable resources, such as burial contracts; the median amount of noncountable resources was $12,530.”  (unnumbered “GAO Highlights” page)

LTC Comment:  Wow!  Three-fourths of GAO’s sample retained assets they weren’t required to spend on long-term care with a median value of more than $12,500?  Seems like that would be worth analyzing, but GAO does not draw out the implications.  A quick back-of-the envelope analysis indicates that if those results could be projected to the total of all Medicaid nursing home residents—which they can’t because of the small, unrepresentative sample GAO used (another serious problem with the study)—they would show that 665,700 Medicaid nursing home residents sheltered over $8.3 billion in noncountable resources or 42.4% of what Medicaid paid for their nursing home care in 2009.  That’s a lot of money to divert from private LTC financing liability.

Quote:  “
Our analysis was limited to information included in the application files, which states used to make their eligibility determinations.  We did not independently verify the accuracy of this information.”  (pps. 4-5)

LTC Comment:  That single admission obviates any value or credibility this report might otherwise have.  Federal quality control audits have found that state welfare eligibility determinations are wrong in up to a third to a half of all cases even after state quality control reviews have confirmed the original determinations by state or county workers.  I know this from personal experience as a federal AFDC quality control re-reviewer in the mid-1970s.  We’ll never know the true extent of Medicaid asset shelters, transfers and other artificial self-impoverishment techniques until someone reviews a valid random sample of long-term care cases that is projectable statewide and nationwide and goes beyond the extremely limited information available in case records for purposes of verification.

Quote:  “. . . 44 percent of approved applicants—129 applicants—had between $2,501 and $100,000 in total resources, and 14 percent of approved applicants—42 applicants—had over $100,000 in total resources.” (pps. 14-15, footnote omitted)

LTC Comment:  Now just for the sake of discussion, let’s pretend GAO’s findings are representative of all Medicaid nursing facility recipients.  How much wealth would that mean Medicaid is sheltering from private long-term care financial liability?  Roughly 888,000 nursing home residents receive Medicaid.  If 14% of them, or 124,264 recipients, possessed $100,000 or more in noncountable resources, that’s at least $12,426,400,000 or 3.4 times the total Medicaid spent for their nursing facility care.  Yet GAO does not draw out the implications.

Quote:  “For the 51 applicants for whom we were able to determine the equity interest in the home, the median home equity was $50,000, and ranged from $0 to $700,000.”  (p. 20)

LTC Comment:  Of the 294 approved Medicaid nursing home applications in GAO’s sample, 91 or 31% owned their own homes with a median value of $68,350.  Most home equity (equity, not value) is noncountable, up to as much as $814,000 in some states.  GAO found median home equity to be $50,000 among the 51 applicants for which they were able to determine it.  Thus 100% of their sample’s home equity was noncountable as indicated in the table on page 21.  Keep in mind that $50,000 is a median home equity value, meaning as many exempt homes were higher in home equity value as were lower, and meaning that the average or mean home equity value could be significantly higher.  Now consider this:  if 31% of
887,598 Medicaid SNF recipients nationwide or 275,155 recipients own homes with a median equity value of $50,000, then at least $13,757,769,000 worth of their home equity is noncountable, a figure that is 1.7 times the annual $8,126,152,615 cost of their care.  Did it not behoove GAO to dig a little deeper?  How much money could Medicaid save by making nursing facility care available only after home equity is spent down by means of private or commercial home equity conversion methods?

Quote:  “
We identified four main methods used by applicants—or described by eligibility workers, state officials, attorneys, or other representatives from law practices—to reduce countable assets and qualify for Medicaid coverage for nursing home care. These four methods are: (1) spending countable resources on goods and services that are not countable, (2) converting countable resources into noncountable resources that generate an income stream, (3) giving away countable assets, and (4) increasing the amount of assets the community spouse retains.”  (p. 24)

LTC Comment:  All right!  This line of reasoning sounds promising, but where does it lead on each of the four main artificial impoverishment methods?

Quote:  “Eligibility workers in 10 of the 12 counties interviewed stated that purchasing burial contracts and prepaid funeral arrangements, which are generally noncountable resources, was a common way applicants reduced their countable assets; and eligibility workers from one state said they recommend making such purchases to applicants.”  (p. 25)

LTC Comment:  OK, fine, but how much money is diverted from long-term care by this specific technique and what are the ramifications?  For example, in our own study of Medicaid and LTC financing in New York, one of the states also included in GAO’s review, the Center for Long-Term Care Reform found, based on estimates by Medicaid eligibility workers and supervisors, that “Around 75 percent of all LTC cases prepay burial expenses for the recipient and spouse in amounts averaging $8,000 to $10,000, but nothing stops them from spending ‘$10,000 each for caskets for ten family members, including daughters, sons,’ according to one worker.” (See “Long-Term Care Financing in New York:  The Consequences of Denial,” p. 18.)  A question GAO should have asked and answered but didn’t is “how much private wealth is diverted by Medicaid from purchasing quality long-term care services and into offsetting funeral expenses for which recipients’ families would otherwise be responsible?”  The number nationwide is conservatively many billions of dollars, a boon to the funeral industry but a huge cost to tax payers and Medicaid budgets.

Quote:  “Among the Medicaid application files that we reviewed in selected states, 16 of the 294 approved applicants (5 percent) had a personal service contract—all of which were determined to be for FMV [fair market value]. The median value of the personal service contracts was $37,000; the value of the contracts ranged from $4,460 to $250,004.”  (p. 26)

LTC Comment:  What if GAO’s findings were valid nationwide?  If 5% of Medicaid nursing home recipients (44,380 recipients) sheltered a median value of $37,000 each in personal service contracts, the total diverted away from private LTC financial liability would be $1,642,056,300 or 3.2% of total Medicaid nursing home expenditures.  That’s a pretty large subsidy to family members for taking care of their loved ones.  And personal service contracts are a technique that is available mostly to savvier, more affluent families who seek legal advice on how to shelter assets.  As usual, the poor lose what little wealth they have to LTC expenses without learning the often technical and complicated legal methods of artificial self-impoverishment.

Quote:  “Of the 70 married approved applicants whose files we reviewed, 13 had applications that contained a claim of spousal refusal.  . . .  These 13 applicants resided in two states and the community spouse retained a median value of $291,888 in nonhousing resources; two of the community spouses were able to retain over $1 million in nonhousing resources.”

LTC Comment:  Spousal refusal is based on a bizarre interpretation of federal law commonplace in only two states (New York and Florida, both of which were included in GAO’s three-state sample for this study) by which spouses of institutionalized Medicaid recipients are allowed to refuse to contribute financially toward the cost of their spouse’s Medicaid-financed care--with impunity and in direct contradiction of the federal statute.  (See “LTC Bullet: Spousal Refusal Robs Taxpayers and the Poor,” December 14, 2010 and “LTC Bullet:  Spousal Refusal:  Who Wins?  Who Loses?,” April 18, 2006.)  The GAO report does not challenge this practice, nor has CMS taken action to curtail or end it.  The spousal refusal cases GAO identified had a median value of nearly $292,000 in nonhousing resources, but as they also found and we reported in our New York study as well, some spousal refusal cases involve a million dollars or more.  Why exactly is this allowed?  Why doesn’t GAO call for its prohibition?   Where is CMS?  Blank out.

Quote:  “Thus, married applicants may use countable resources to purchase an irrevocable annuity that pays potentially large amounts of income for the community spouse over a short period of time without affecting the institutionalized spouse’s eligibility.  A representative from one law office we spoke to in an undercover capacity suggested that the creation of an annuity can be done quickly and therefore, is a tool for last minute planning. . . .  State Medicaid officials, county eligibility workers, and attorneys who provided information on the value of annuities for the community spouse reported average values ranging from $50,000 to $300,000.  Officials from one state reported seeing annuities for the community spouse worth more than $1 million. Medicaid officials from one state indicated that they have seen annuities that disbursed all of the payments to the community spouse shortly after the annuity was purchased, while officials from another state said that annuities can have large monthly payments for the community spouse, such as $10,000 per month.”  (p. 32)

LTC Comment:  Spousal annuities are a huge loophole that allows many millions of dollars to be diverted from private long-term care financing into the pockets of wealthy Medicaid nursing home recipients’ spouses.  In our study of Medicaid and LTC financing in Maine, for example, we found that in 2011 “46 annuities totaling $5,847,488 were approved averaging $127,119 over a payback period of 20.07 months on average with a total return of $5,911,035 to the annuitants, whose average age was 82.”  (“The Maine Thing About Long-Term Care Is That Federal Rules Preclude a High-Quality, Cost-Effective Safety Net,” p. 11).  Yet GAO does not call for closing the annuity loophole nor has CMS done anything about it.

Quote:  “Among the 294 approved applicants whose files we reviewed, we identified 5 applicants (2 percent) who appeared to have used one of the ‘reverse half-a-loaf’ mechanisms; 4 of the applicants appeared to use the mechanism that involved creating an income stream through a promissory note to pay for nursing home care during the penalty period. These 4 applicants gifted between $20,150 and $227,250 worth of resources, and had penalty periods of between 2 months and 22 months.”  (p. 29)

LTC Comment:  Again, GAO gives only glancing attention to the reverse half-a-loaf technique widely employed by Medicaid planners to reduce their affluent clients’ Medicaid spend down liability by half.  The incidence of this technique’s use as identified by GAO—only 2%—seems small, but keep in mind that it’s only used for people with substantial assets.  Otherwise, it would hardly be worth the cost in attorneys’ fees to set up the complicated technique.  Public officials should ask about this and all the other techniques downplayed in the GAO report “how much public spending is being wasted?” and “why are such abuses allowed to continue?”

Closing LTC Comment:  Bottom line, in this and earlier GAO reports on Medicaid LTC eligibility, the agency has minimized the significance of its own findings and failed to recommend needed corrective actions.  Why?  I think the answer is as simple as this:  When it comes to government benefits, nobody wants to rock the boat.  It’s easier to borrow and spend more and more public funds on wasteful, counterproductive policies than to confront fundamental problems, especially when those problems benefit affluent people who are most likely to vote.

So, kudos to Senators Tom Coburn, M.D. (R, OK) and Richard Burr (R, NC) and to Congressmen Darrell Issa (R, CA) and Trey Gowdy (R, SC) for requesting this study and special thanks to their hard-working staff who persuaded them to do so.  The next step should be to connect the dots, identify the real magnitude of the problems GAO has only partially elucidated, and fix them.  Don’t hold your breath.